Application of COLA to a Retirement Benefit

General
A COLA increases a person's Social Security retirement benefit by
approximately the product of the COLA and the benefit amount. The
exact computation, however, is more complex.

Each Social Security benefit is based on a "primary insurance amount," or PIA.
The PIA in turn is directly related to the primary beneficiary's earnings
through a benefit formula. It is the PIA that
is increased by the COLA, with the result truncated to the next lower dime.

Example
If the initial PIA is $1,342.50 and it is increased
by a 1.7-percent COLA, the new PIA would be $1,365.30 after
truncation to the next lower dime.

Early or delayed retirement affects your benefit amount
If you choose to retire before your normal
retirement age, your benefit will be lower than your PIA. On the other
hand, if you choose to retire after you attain your normal retirement age,
your benefit will be higher than your PIA.

Any offset to the benefit, such as payment of the Medicare
Supplementary Medical Insurance (SMI) premium, is subtracted

Finally, the resulting amount is truncated to the next lower dollar

Summary
When a COLA occurs, we increase the PIA as described above, and we repeat the
steps required to calculate the new benefit amount based on the new, higher PIA.
Due to the rounding, possible offsets, and final truncation in these steps, the
increase in the new monthly benefit amount over the previous amount may differ
somewhat from the COLA.

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